Drowning in Delinquent Debt; 35 Percent of Americans are in Collections

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July 31, 2014 by Lisa Brammer

Every day millions of Americans are challenged by economic worries. According to a newly released report, 77 million Americans—over one-third of adults with a credit file—have past-due debt in collections with an average amount of non-mortgage debt of $5,178.

Urban Institute, the non-profit organization that gathers data, conducts research, and evaluates programs to gain knowledge regarding the nation’s social and fiscal challenges, recently released two studies, “Delinquent Debt in America” and “Debt in America.”

These studies were based on data provided by TransUnion, one of the three major credit reporting agencies, and refer to individuals with a credit file.  The estimated 22 million Americans who do not have a credit file are not represented in these reports.

These studies show that 80% of Americans are in debt.  At first glance, your response might be “yikes,” but not all debt is bad. Consumers accumulate debt for many reasons with varying outcomes. Productive debt is the type of debt that is typically acquired as a way to increase wealth—as in the old saying, “You need money to make money.” Caroline Ratcliffe, a senior fellow at Urban Institute and an author of the report said, “We talk about credit and access to credit as a good thing, but debt as a bad thing. Access to credit can result in productive debt that moves us forward.” Examples of productive debt would include: a home mortgage, financing of a new business, and education/skills training. The other type of debt, the unproductive type, does not have the same long-term benefits and is consequently riskier. It is taken on when people purchase cars, household items or services on credit, and is sometimes acquired due to an unexpected job loss or an unanticipated medical bill.  Greg McBride, chief financial analyst for Bankrate.com, thinks that you need to look at the big picture. “Somebody with $400,000 in mortgage debt and no other debts could be in much better financial shape than the person with no mortgage debt but $10,000 in consumer debt,” McBride explains.

Unfortunately, there are times when debts are difficult to pay. According to the Urban Institute studies, delinquent debt is widespread across the United States and Nevada leads the pack. Almost half (47%) of its consumers have serious debt in collections, with an average balance of $7,198. Nevada was one of the states hit worst by the distressed economy and housing-market collapse of 2008. This explains, in part, why its citizens have difficulty paying their debts.

Nevada doesn’t stand alone. There are many states with at least 40 percent of their residents in collections, and eleven of them are in the South.  States with the fewest amount of residents with debt in collections were from the Midwest. North Dakota boasts the fewest amount with 19.2% of its residents in collections. Minnesota and South Dakota follow with 19.8 percent and 20.8 percent respectively.  Even New England, an area which is typically known for their Yankee frugalness, has 25% of their population with debt in collections.

“Debt in collections is pervasive and threads through nearly all communities,” says Ratcliffe. The long-term effect can have a profound effect on one’s financial health. Not only can it make credit more expensive or out of reach, it can limit new job opportunities as some employers check credit before hiring.

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing highly effective, customized one on one management and recovery solutions for our business partners. We offer pre-service collection solutions as well as traditional back-end collections. Visit our website at http://www.unitedcreditservice.com or call 877-723-2902.


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